Solar power subsidy may prove expensive

Saturday, June 20, 2009

52431

Proposed Rs24,000 cr subsidy to promote solar energy is in conflict with India’s stance on climate change-experts. The calculated subsidy is based on the assumption that cost of solar energy production will go down by 9% per year

A proposal that suggests a Rs24,000 crore annual subsidy for 20 years to promote solar power could undermine India’s position at the international climate control talks.

The proposal, prepared by the ministry of new and renewable energy, is waiting for approval at the Prime Minister’s Council for Climate Change.

The draft document proposes to boost the country’s solar energy production to 20,000MW by 2020. India currently has an installed capacity to produce 10MW of electricity from the sun.

The sum of Rs24,000 crore is about three-fourths of India’s total food subsidy in the year ended 31 March.

Experts say that such a large subsidy to promote solar energy conflicts with the country’s stated position on climate change.

At global negotiations, India has demanded that all incremental costs of clean technologies be borne by the industrialized nations, a view supported by China and the Group of 77 countries.The government has so far maintained that it will only initiate steps against the threat of climate change that have a net positive economic advantage for the country and provide energy security, expecting developed nations to foot the bill for clean technologies.

A study by consultancy firm McKinsey and Co., which is yet to be released, on costs of reducing greenhouse gases in India, shows that there is a net cost to adopting solar energy, and it means that until 2030 the costs of solar energy production would be in excess of any profits that might be made for the economy out of using the fledgling technology.

“This is exactly the kind of incremental cost India should demand from richer countries. And if India has calculated the incremental cost, then it is even better,” a technology and policy analyst said on condition of anonymity. “Basing such an ambitious mission on the assumption of fast learning and simultaneous drastic cost reduction in solar energy production is extremely risky.”

The Congress party-led United Progressive Alliance government last year announced establishing eight missions that would together form India’s National Action Plan on Climate Change (NAPCC). The draft document aims to set down its solar mission, which is one of the eight.

A government official involved in the deliberations said that if the projected targets are finalized under the NAPCC, then it can translate into a national mitigation action for India.

“If, on the other hand, India is going to be a growth engine on solar energy science backed by Indian public money, then have we thought of who will hold the intellectual property rights on these innovations?” the official however asked, pointing to the lack of focus on research and development and intellectual property rights in the draft proposal.

The International Energy Agency projects the world’s solar energy production capacity to be 27,000MW by 2020. If India achieves the 20,000MW target set in the solar mission document, it would be producing three-fourths of the world’s solar power.

The document suggests that the government hands out the subsidy to electricity distributors, who will buy the solar power from the generators. Whether the amount will be collected through a surcharge on domestic or commercial tariffs is still under discussion. The government earlier mulled a cess on coal, oil, gas and thermal power to put together a solar fund, an idea which has now been scrapped.

The calculated subsidy of Rs24,000 crore a year is based on the assumption that cost of solar energy production will go down by 9% every year. How the cost will fall is not explained in the document.“Solar PV (photovoltaic cells that convert sunlight into electricity) costs have stagnated in the past 10-12 years. Currently, if you try to raise efficiency, then cost goes up disproportionately,” said Surya Sethi, principal adviser, energy, Planning Commission, the country’s top planning body. “All this while, solar-thermal hybrid costs Rs11-12 per kWh (kilowatt-hour), which is not even mentioned (in the document),” he pointed out.Sethi said that if the government intends to provide such a huge subsidy, it should provide a policy framework that delivers maximum renewable energy at the least cost and be technology neutral. “The onus should be on the market to find the most optimal renewable mix.”